Sakana says Islamic finance will survive real estate slump - CPI Financial

http://www.cpifinancial.net/v2/News.aspx?v=1&aid=6399&sec=Islamic%20Finance

Wednesday, October 27 2010

Islamic Finance Sakana says Islamic finance will survive real estate slump By: Staff Writer Print this article R Lakshmanan, Chief Executive Officer of Sakana Holistic Housing Solutions, said that Islamic financial institutions (IFIs) providing mortgages for off-plan properties are significantly exposed to risks due to delayed delivery and cancellation of several real estate projects, because the IFI owns the asset. In addition, the mortgage providers have also been affected to fall in property prices and increased defaults due to job losses. His presentation focused on Ijara Mawsofah fi Dhimah (Forward Lease) structure of financing which is used by the mortgage providers for off-plan properties. Lakshmanan said that risks associated with financing can be mitigated and managed effectively and suggested IFIs to focus on “developer due diligence” by carrying out detailed reviews of the developers’ credentials, and project feasibility including marketing and financials. Moreover, the IFI should also ensure tight project monitoring while making progress payments during the construction period. Lakshmanan also said that due care should be taken while preparing legal documentation with particular emphasis on penalties due to delayed delivery as this may have a financial impact on the IFI’s operating results. In addition, the IFI should ensure robust credit risk/control. Lakshmanan concluded that adoption of better risk management practices will enable growth of Islamic finance.